This invention relates to a method and system for using a general-purpose computer for forecasting prices and amounts of production, consumption and inter-regional trade of agricultural commodities across types of commodities (primary, intermediate, processed), over time and under varying trade and domestic policy scenarios. Industries that trade in agricultural commodities that are comprised of constituent components such as dairy, grain, meat and oil seed commodities, require accurate predictions of the prices, production, consumption and trade flow levels of those commodities and their constituent components in order to compete in today's marketplace. In addition, regional variations in supply and demand trends, trade and domestic policies make it difficult to predict the effects of same on agricultural commodity markets. Further complicating the ability to forecast attributes of agricultural commodities are the politically controlled future changes to trade policies regarding tariffs and subsidies on imports and exports of commodities across regions and domestic policies such as price discrimination. Many industries using, producing and/or trading in agricultural commodities and that may themselves be multi-regional, require a method and system for generating accurate forecast information to inform their marketing and procurement decisions across regions and under a fluid landscape of supply and demand trends and policy scenarios.
Increasingly, the market in such agricultural commodities has become component-based. That is, trade in the constituent intermediate component commodities, in addition to the primary and processed commodities themselves, is fueling the economies of many industries. The method and system of the present invention is particularly useful for (but not limited to) the dairy industry in which advances in reconstitution technologies have enabled the increased use of and trade in intermediate commodities. For example, the component based marketing and procurement strategy implications of dairy product development and markets, are driven by the constituent components of milk [milk fat (and fat fractionations), protein (casein, whey protein, and other protein fractionations), and lactose (and lactose fractionations)], rather than by milk itself, the primary commodity. As a result, much of the current world dairy sector demand growth is industrial demand for milk-based ingredients (i.e. intermediate versus final processed demand commodities).
Driving these trends in dairy (and other agricultural) based ingredient demand, are (1) continued advances in food processing and reconstitution technologies, both on the input side (fractionations of milk components) and product side (processes to optimize cost and functionality of processed commodities using the evolving dairy based ingredients); (2) the functional characteristics of input primary or intermediate commodities and final processed commodities; and, (3) the continual search by processors for low cost ingredients and improved product functionality. For example, dairy based component ingredients currently in demand include the intermediate commodities of whey proteins, lactose and milk protein concentrate fractionations of milk.
Knowledge of the future cost and availability of these primary, intermediate and processed dairy commodities across regions, is required to enable industries to formulate management and procurement strategies that optimally allocate the industrial or technological resources employed in the production, consumption and/or trading of the dairy commodities. For example, an industry may decide to substitute lactose for cane or beet sugar in the making of a final commodity if lactose is cheaper, available and allowable as an ingredient in the making of the commodity. Such an industry would need forecast information regarding lactose to formulate long-term regional procurement strategies. Likewise, whey proteins may be used by industries as multifunctional food ingredients with high nutritional value and a wide range of functional properties that allow the development of new products and optimization of existing products with considerable cost savings.
Knowledge of trade and domestic policies and how these might affect the cost and availability of commodities is also useful to industries. For example, advances in processing technologies have led to the production of fractionates of bulk fluid milk, such as milk protein concentrates (MPCs), lactose and de-mineralized lactose, that are widely used in sports drinks, cheese standardization, and a variety of other applications as substitutes for milk powders, evaporated/condensed milks, and even farm bulk milk. Use of the fractionates instead of the milk powders will affect the markets for both types of commodities. In regions having relatively low tariffs and no import quotas on MPCs, such as the U.S., these products are increasingly attractive to food processors as a way to source cheaper milk solids (and, often increased functionality) from foreign sources. However, U.S. standards of identity for many cheese products, currently do not allow the use of MPC ingredients in the manufacturing process. This has led many processors to circumvent these standards of identity and labeling requirements [e.g., producing “pizza cheese” (for which no specific standard of identity exists] instead of mozzarella cheese). These standards of identity issues, in addition to trade issues, may drive marketing and procurement decisions in affected industries.
For the foregoing reasons, there is a need for a method and system to accurately forecast future prices, production, consumption and trade flows of agricultural commodities and constituent components thereof regionally, on at least an annualized basis, and under variable trade scenarios. The present invention addresses this need by providing a method and system for forecasting a price, an amount of consumption, an amount of production and an amount of trade flow of a plurality of dairy primary, intermediate and processed commodities inter-regionally, so as to enable an optimal allocation of industrial or technological resources employed in the production, consumption or trading of the dairy commodities based on the forecasted values for the commodity prices and amounts of consumption, production and trade flow.
By employing the present invention, an industry dealing at any level of commodity production, use or trade (primary, intermediate, and/or processed) is able to gain the information required to manage for minimal costs and maximal profits. Industries may also manage private stocks of commodities to minimize their economic risks in futures markets depending on forecasted price and availability trends as well as potential changes to trade and domestic policies. They may furthermore use forecasted trends data to increase the functionality of their commodity products and/or open new markets for their final or intermediate commodities.